Malaysian leadership in capital markets

While Malaysia is leading in the sukuk and capital markets, the nation lacks direction in the halal industry.

RUSHDIby Rushdi Siddiqui

PETALING JAYAL The Budget 2014 was announced by Prime Minister Najib Tun Razak, and reference and allocation to socially responsible investment (SRI) sukuk and Environmental, Social and Governance (ESG) index are indeed welcomed and forward looking for developments.

It not only shows Malaysia’s leadership in the capital markets for the (56 countries) Muslim world, the Organisation of Islamic Cooperation, but, more importantly, the announcements are also building bridges to the (post financial crisis) ethical and responsible movements in Europe and US, estimated at US$2.2 trillion (RM6.82 trillion).

I hope we will see the following blueprint, in both areas, in the next few months.

The only disappointment was the lack of direction on the halal industry, as Malaysia also positioned itself as a halal hub. The conversation surrounding halal industry in Malaysia must be taken to the next level as (resurging) Dubai has made a commitment to an Islamic economy, where one leg of it is the halal industry.

SRI Sukuk

The concept of a Green sukuk was raised in Dubai few years ago by the Gulf Bond and Sukuk Association, however, issuance has not yet materialised. The green concept, as many people equate it to the “colour” for/of Islam, for raising money and investing has not gotten traction in Islamic finance! Why? For example, in 2006, while at Dow Jones Indexes, I led a team to launch the world’s first Islamic Sustainability Index, however, no funds were launched off of it.

Maybe the concept of “positive” screening was ahead at the time, hence, market place was still trying to understand “negative” screening, when the Dow Jones Islamic Market index was launched in 1999.

Furthermore, to my knowledge, not one Islamic bank is a signatory member of the Climate, Carbon or Equator Principles! Yet, Islamic banks have historical bias towards financing real estate/infrastructure projects, which obviously have an environmental impact.

To the enlightened, there is confidence that a SRI sukuk will happen in Malaysia, as led by the globally recognised and highly respected Securities Commission. Indeed, Malaysia is a sukuk hub, based upon issuance, volume and secondary market trading. Obviously, details will be thought through, thorough and unveiled going forward.

I would hope, some of the attributee include:

• Benchmark size: US$500 million to US$1 billion, as size matters, and part of an ongoing programme to build a SRI sukuk yield curve;

• 10- to 15-year tenure, as infrastructure projects are not short-term plays;

• Denominated in hard currency for widest available of investors as an inclusionary approach is also cross sell of Islamic finance;

• Signed off by international Shariah scholars from the Gulf Cooperation Council (GCC), Malaysia, Pakistan, etc;

• Backed by the Islamic Development Bank, International Monetary Fund, World Bank and Asian Development Bank;

• Syndicate led by Islamic banks and blue chip western investment banks with Islamic finance presence;

• Investors include sovereign wealth funds, especially in GCC, to have their “profile” commitment;

• Listed in London, Dubai and Malaysia.

The SRI sukuk is also about impact investing and financing, a concept raised by the managing director of Kazanah Nasional Bhd, Azman Mokhtar, at last week’s Securities Commission World Capital Markets Summit.

Thus, it’s both intellectually and financially interesting, while showcasing our commitment to becoming responsible stewards for the planet’s future generations.